ANZ in $1.4bn half-year record

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Chief executive John McFarlane puts the glowing results down to the bank's "relentless focus" on building sustainable profits and reducing risk.PICTURE: DANIELLE SMITHPicture:Danielle Smith

ANZ Bank, the nation's third-largest lender, yesterday reported a record half-year net profit of $1.4 billion, but put the sector on alert about the effect on its margins of a rising cost of funds and increasing competition for deposits.

In announcing the 22 per cent rise over the same period last year, chief executive John McFarlane focused on his seven years at the helm rebuilding the bank and its "relentless focus" on building sustainable profits and reducing risk.

"It has been the end of a long journey to get to this first half," Mr McFarlane said. ANZ's share price has risen 90 per cent in the past four years.

He said the next phase, which was partly foreshadowed last week when it announced plans to refocus on the growing wealth management and retail sectors, was to invest to create future revenues.

Mr McFarlane, who forecast 9 per cent growth in full-year operating profit after tax, also said the integration of the National Bank of New Zealand (NBNZ) was on track and had been immediately accretive to earnings per share for the group.

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"We've had a strong start to the year," he said. "We feel comfortable with the guidance we gave of 9 per cent cash earnings at the beginning of the year." However, analysts pointed out that excluding the $71 million from NBNZ and a net profit of $84 million from the close-out of interest rate swaps on the group's buyback of preference shares, the rise was a less impressive 9 per cent for the corresponding 2003 period.

The fully franked interim dividend of 47¢ - up 11 per cent after being adjusted for the bonus element from the recent rights issue - is to be paid on July 1. The bank's shares outperformed the sector on a day when the market was concerned about the prospects of rising US interest rates. It closed at $18.88, down 7¢.

The bank said asset growth in the first half was particularly strong and excluding NBNZ, net loans and advances grew by 10 per cent. Mr McFarlane said domestic and international risk, particularly on its institutional businesses, had been reduced.

It has been the end of a long journey to get to this first half. JOHN McFARLANE, chief executive

The star performers were home lending volume growth of 22 per cent and a 39 per cent rise in profits from the consumer finance or credit card business.

Net specific provisions were down by 24 per cent, net non-accrual loans down by 14 per cent, and international assets were 19 per cent lower. Australia and New Zealand now account for 93 per cent of group assets.

However, a fall in interest rate margins by 11 basis points in the half has put investors on alert for the possibility of some more shocks over the next two weeks as St George Bank and Westpac report.

National Australia Bank, which reports on May 12, has already warned of a double-digit impact on margins.

Citigroup Smith Barney banking analyst Michael Macrow said "to the extent there was a negative", it was the impact on profitability of reduced margins, arising from higher funding costs and competitive pressures.

Other analysts described the results as meeting expectations but "disappointing" given the strong lending growth, good credit quality, rebounding stockmarkets and an economy that grew 1.4 per cent in the fourth quarter.